Unit - 4 : Entrepreneur: Types and Functions

[Pages:18]Unit - 4 : Entrepreneur: Types and Functions

Structure of Unit:

4.0 Objectives 4.1 Introduction 4.2 Types of Entrepreneur 4.3 Functions of Entrepreneurs 4.4 Role of Entrepreneurs 4.5 Entrepreneur vs. Entrepreneurship 4.6 Entrepreneurial Failure 4.7 Summary 4.8 SelfAssessment Questions 4.9 Reference Books

4.0 Objectives

After completing this unit, you will be able to:

Classify different types of entrepreneurs on various bases. Look at the reasons for entrepreneurial failure. Describe the various functions of entrepreneurs. Understand the role and significance of entrepreneur in economic development Establish a relationship between entrepreneur and entrepreneurship. Come across the rewards and challenges of being an entrepreneur.

4.1 Introduction

The role of entrepreneurs in economic development varies from economy to economy, country to country, depending upon its material resources, industrial climate and more importantly, the responsiveness of the political system to the growth of entrepreneurs. Liberalization and the new economic policy have thrown upon the doors for every entrepreneur to seek its own fortunes and thus contribute to the growth of the economy. And entrepreneur is an important input of economic development. He is a catalyst of development. Only the entrepreneurs create capital, wealth and resources in a country by their inventive and risk-taking behaviour. They are the prime movers of industrial development in a country. Entrepreneurs are found in every economic system and in every type of economic activity. Artisans, traders, importers, engineers, exporters, bankers, industrialists, farmers, forest workers, tribal's, professionals, politicians, and bureaucrats, any one from these could be entrepreneur. The nature of entrepreneurs differs according to their functions.

4.2 Types of Entrepreneur

Researchers who have studied entrepreneurial behaviour suggest that there are different types of entrepreneurs. Classifying entrepreneurs into various categories is a tricky issue. The taxonomy of entrepreneurs can be carried out in various ways. Entrepreneurs can be classified on various basis. Clarence Denhof Classifies entrepreneurs on the basis of stage of economic development: some others have classified on the basis of their functions and characteristics. In the initial stages of economic development,entrepreneurs tend to have less initiative and drive. As development proceeds, they become more innovating and enthusiastic. The various types of entrepreneurs are classified on certain parameters. Some important classifications are described below:

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1. On the Basis of Economic Development: Clarence Danhof classified entrepreneurs into four groups on the basis of economic development.

A. Innovating Entrepreneurs: This type of entrepreneurship is characterized by aggressive assemblage of information and the analysis of results deriving from novel combination of factors of production. Entrepreneurs falling in this class are generally aggressive in experimentation and exhibited shrewdness in putting attractive possibilities into practice.

They are the entrepreneurs who have creative and innovative ideas of starting a new business. An innovating entrepreneur sees the opportunity for introducing a new technique or a new product or a new market. He may raise money to launch an enterprise, assemble the various factors, and choose top executives and the set the organization going. Schumpeter's entrepreneur was of this type. Innovative entrepreneurs thus, results in the creation of something new. They are the contributors to the economic development of a country.

Innovating entrepreneurs are very commonly frond in undeveloped countries. There is dearth of such entrepreneurs in developed countries. Innovating entrepreneurs played the key role in the rise of modern capitalism, through their enterprising sprit, hope of moneymaking, ability to recognize and exploit opportunities, etc.

B. Adoptive or Imitative Entrepreneur: There is a second group of entrepreneurs generally referred as imitative entrepreneurs. The imitative entrepreneurs copy or adopt suitable innovations made by the innovative entrepreneurs. They does not innovate the changes himself. They only imitates technology innovated by others.

Such entrepreneurs are particularly important in developing courtiers because they contribute significantly to the development of such economies. Imitative entrepreneurs are most suitable for the developing regions because in such countries people prefer to imitate the technology, knowledge and skill already available in more advanced countries. In highly backward countries there is shortage of imitative entrepreneurs also. People who can imitate the technologies and products to the particular conditions prevailing in these countries are needed.

Sometimes, there is a need to adjust and adopt the new technologies to their special conditions. Imitative entrepreneurs help to transform the system with the limited resources available. However; these entrepreneurs face lesser risks and uncertainty then innovative entrepreneurs. While innovative entrepreneurs are creative, imitative entrepreneurs are adoptive.

C. Fabian Entrepreneur: The third type is Fabian entrepreneur. By nature these entrepreneurs are shy and lazy. This type of entrepreneurs have neither will to introduce new changes nor desire to adopt new methods of production innovated by the most entrepreneurs. They follow the set procedures, customs, traditions and religions. They are not much interested in taking risk and they try to follow the footsteps of their predecessors. Usually they are second generation entrepreneur in a business family enterprise.

D. Drone Entrepreneur: The fourth type is Drone entrepreneurs who refuse to copy or use opportunities that come on their way. They are conventional in their approach and stick to their set practices products, production methods and ideas. They struggle to survive not to grow. They may be termed as Laggards. In such cases the organization looses market, their operations become uneconomical and they may be pushed out of the market.

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2. On the Basis of Type of Business: Under this category we can classify entrepreneurs as described below:

A. Business Entrepreneurs: They are the entrepreneurs who conceive an idea for a new product or service and then create a business to materialize their idea into reality. They tap the entire factor of production to develop a new business opportunity. They may set up a big enterprise or a small scale business. When they establish small business units they are called small business entrepreneurs. In a majority of cases, entrepreneurs are found in small trading and manufacturing business.

B. Trading Entrepreneur: There entrepreneurs undertake trading activities and are not concerned with the manufacturing work. They identifies potentiality of their product in markets, stimulates demand for their product line among buyers. They may go for both domestic and overseas trade. These entrepreneurs demonstrated their ability in pushing many ideas ahead which promoted their business.

C. Industrial Entrepreneur: Industrial entrepreneur is essentially a manufacturer who identifies the needs of customers and creates products or services to serve them. He is product-oriented who starts through an industrial unit to create a product like electronic industry, textile unit, machine tools.

D. Corporate Entrepreneur: These entrepreneurs used his innovative skill in organizing and managing a corporate undertaking. A corporate undertaking is a form of business organisation which is registered under some statute or Act like a trust registered under the Trust Act, or a company registered under the Companies Act. These corporate work as separate legal entity. He is thus an individual who plans, develops and manages a corporate body.

E. Agricultural Entrepreneur:Agricultural entrepreneurs are those who undertake agricultural activities as through mechanization, irrigation and application of technologies to produce the crop. They cover a broad spectrum of the agricultural sector and include agriculture and allied occupations.

3. According to the Use of Technology: The application of new technology in various sectors of the national economy is essential for the future growth of business. We may broadly classify these entrepreneurs on the basis of the use of technology as follows:

A. Technical Entrepreneurs: With the decline of joint family business and the rise of scientific and technical institutions, technically qualified persons have entered the field of business. These entrepreneurs may enter business to commercially exploit their inventions and discoveries. Their main asset is technical expertise. They raise the necessary capital and employ experts in financial, legal- marketing and other areas of business. Their success depends upon how they start production and on the acceptance of their products in the market.

B. Non-technical Entrepreneur: Non-technical entrepreneurs are those who are not concerned with the technical aspects of the product or service in which they deal. They are concerned only with developing alternative marketing and promotional strategies for their product or service.

C. Professional Entrepreneur: Professional entrepreneur is an entrepreneur who is interested in establishing a business but does not have interest in managing it after establishment. A professional entrepreneur sells out the existing business on good returns and starts another business with a

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new idea. Such an entrepreneur is dynamic and conceives new ideas to develop alternative projects.

4. According to Motivation: Motivation is the main force that promotes the efforts of the entrepreneur to achieve his goals. An entrepreneur is motivated to achieve or prove his excellence in their performance. According to motivation we can classify entrepreneur as:.

A. Pure Entrepreneur: A pure entrepreneur is the one who is motivated by psychological economical, ethical considerations. He undertakes an entrepreneurial activity for his personal satisfaction in work, ego or status.

B. Induced Entrepreneur: This type of entrepreneur is one who induced to take up an entrepreneurial task due to the policy reforms of the government that provides assistance, incentives, concessions and other facilities to start a venture. Most of the small scale entrepreneurs belong to this category and enter business due to financial, technical and several other facilities provided to them by the various agency of Govt. to promote entrepreneurship. Today, import restrictions and allocation of production quotas to small units have induced many people to start a small scale unit.

C. Motivated Entrepreneur: New entrepreneurs are motivated by the desire for self-fulfillment. They come into being because of the possibility of making and marketing some new products for the use of consumers. They are motivated through reward like profit.

5. According to Growth: The industrial units are identified as high growth, medium growth and low growth industries and as such we have `Growth Entrepreneur'and `Super Growth Entrepreneur.'

A. Growth Entrepreneur: He necessarily takes up a high growth industry and chooses an industry which has sustained growth prospects. Growth entrepreneurs have both the desire and ability to grow as fast as large as possible.

B. Super-Growth Entrepreneur: This category of entrepreneurs is those who have shown enormous growth of performance in their venture. The growth performance is identified by the high turnover of sales, liquidity of funds, and profitability.

6. According to Entrepreneurial Activity: Based on entrepreneurial activity, entrepreneurs are classified as novice, serial, and portfolio entrepreneur.

A. Novice Entrepreneur: Anovice is someone who has started his/her first entrepreneurial venture. A novice entrepreneur is an individual who has no prior business ownership experience as a business founder, inheritor of a business, or a purchaser of a business. It is not similar to early starter; a novice can also be a 50 year old with over 25 years of experience in the industry.

B. A Serial Entrepreneur:ASerial Entrepreneur is someone who is devoted to one venture at a time but ultimately starts many. It is the process of starting that excites the starter. Once the business is established, the serial entrepreneur may lose interest and think of selling and moving on.

C. Portfolio Entrepreneur:Aportfolio entrepreneur is an individual who retains an original business and builds a portfolio of additional businesses through inheriting, establishing, or purchasing them. A portfolio entrepreneur starts and runs a number of businesses. It may be a strategy of spreading risk or it may be that the entrepreneur is simultaneously excited by a variety of opportunities. Also, the entrepreneur may see some synergies between the ventures.

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7. Other Entrepreneurs:

A. First-Generation Entrepreneurs: This category consists of those entrepreneurs whose parents or family had not been into business and was into salaried service. The booming economy of India has led to a multitude of business opportunities, and with deregulation, it has become easier to set up businesses. Also, with a change in the mindset of the middle class, it is now more acceptable to become an entrepreneur. A first-generation entrepreneur is one who starts an industrial unit by means of an innovative skill. He is essentially an innovator, combining different technologies to produce a marketable product or service.

B. Modern Entrepreneur: A modern entrepreneur is one who undertakes those businesses which go well along with the changing scenario in the market and suits the current marketing needs.

C. Women Entrepreneurs: Women as entrepreneurs have been a recent phenomenon in India. The social norms in India had made it difficult for women to have a professional life. Now this has changed. Progressive laws and other incentives have also boosted the presence of women in entrepreneurial activity in diverse fields. In 1988, for the first time, the definition of Women Entrepreneurs' enterprise was evolved that termed an SSI unit/industry-related service or business enterprise, managed by one or more women entrepreneurs in proprietary concerns, or in which she/they individually or jointly have a share capital of not less than 51 per cent as partners / shareholders / directors of a private limited company / members of a cooperative society, as a Woman Enterprise.

D. Nascent Entrepreneur: A nascent entrepreneur is an individual who is in the process of starting a new business.

E. Habitual Entrepreneur:Ahabitual entrepreneur is an individual who has prior business ownership experience. The nascent entrepreneur can either be a novice or a habitual entrepreneur.

F. Lifestyle Entrepreneurs: Lifestyle entrepreneurs have developed an enterprise that fits their individual circumstances and style of life. Their basic intention is to ear an income for themselves and their families.

G. Copreneurs: It is related to the married couples working together in a business. When a married couple share ownership, commitment and responsibility for a' business, they are called "copreneurs". As copreneurs, couples struggle in ventures to establish equality in. their relationships. Such couples represent the dynamic interaction of the systems of love and work.

H. IT Entrepreneurs: IT entrepreneurs are creating a new business platform that takes them straight to the top. They are confident, ambitious innovative and acquired creativity in the competitive global environment and created a niche of their self. They are the brave new bunch of entrepreneurs who are raring to take on the world of information technology.

I. Social Entrepreneur: Social entrepreneur is one who recognizes the part of society which is stuck and provides new ways to get it unstuck. Be it dedicated efforts for child upliftment, fighting for the conservation ofAssam's rainforests, working for the betterment of the blind or initiativesto empower women, the entrepreneur's passion is very strong. Freedom, wealth, exposure, social mobility and greater individual confidence are driving this huge wave of social innovation and entrepreneurship. After all are tired with the Inefficiency of governments and the indifference of corporate, and want to make a change and this is the case everywhere.

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J. Forced Entrepreneurs: The money-lenders of yesterday, who are thrown out of their family business because of government legislation, the neorich Indians returning from abroad and the educated unemployed seeking self-employment form this class of entrepreneurs.

K. Individual and Institutional Entrepreneurs: In the small scale sector individual entrepreneurs are dominant. Small enterprises outnumber the large ones in every country. Such entrepreneurs have the advantage of flexibility, quick decision making. But a single individual can establish, operate and control an organization up to a limit. Thereafter, it becomes necessary to institutionalize entrepreneurship. The business will have to acquire a number of new entrepreneurial skills through a corporate body. A group of entrepreneurs has to be developed to handle the increasingly complex network of decision making. The central function of the entrepreneur remains the same but the basic decisions like the line of business, the amount of capital employed, etc. are taken collectively bythe promoters at the helm of affairs. Thus, individual entrepreneur and institutional entrepreneur coexist and support each other. Corporate sector the symbol of institutionalized entrepreneurship.

L. Entrepreneurs by Inheritance:At times, people become entrepreneurs when they inherit the family business. In India, there are a large number of family controlled business houses. Firms in these houses are passed from one generation to another.

The various types of entrepreneur based on certain basis are also explained in the figure 4.1:

On the basis of Economics development

On the basis of type of business

According to use of technology

According ot motivation

Innovative Imitative Fabian Drone

Business Trading Industrial Corporate Agriculture

Technical Non-technical Professional

Pure Induced Motivated

According to growth

Growth Super growth

According to entrepreneurial activity

Novice Serial Portfolio

Other

IT entrepreneur Social entrepreneur Institutionalized Forced entrepreneur

Fist generation Modern Women Nascent Habitual Life style Copreneurs By inheritance

Figure 4.1 : Types of Entrepreneurs

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4.3 Functions of Entrepreneurs

Entrepreneur is an opportunity seeker and organizer and coordinator of the factor of production. He not only perceives the business opportunities but also mobilizes the other resources like ? man, money,machine, materials and methods. According to some economists, the functions of an entrepreneur are establishing coordination. In business enterprise, risk-taking, controlling the enterprise, innovation for change, motivation and other related activities. In reality, an entrepreneur has to carry out a combination of these functions in keeping with time and environment. Truly, he has to consider new ideas, demands and exploit the opportunities, and thereby contribute to technical progress. Asuccessful entrepreneur recognizes the potentialofa product or service, design operating policies in marketing, production, product development and the organisational structure. He carries out the whole set of activities of the business. He has a high capacity for taking calculated risks and has faith in his own capabilities.

An entrepreneur performs all the necessary functions which are essential from the point of view of operation and expansion of the enterprise. We can explain this through the flow diagram described in figure 4.2:

Assessing the potential for the entrepreneurial

venture

?Gathering information ?Identifying potential opportunities ?Assessing possible competitive advantages

Researching venture feasibility

?Uncovering business idea ?Competitor analysis ?Exploring financial options

Planning the venture (Planning issues)

Organizing the venture (start-up activities)

?Organizational vision and mission ?Creation strong and effective business plan

?Choosing legal form of business ?Legal Issue: patents & copyright ?Structuring organizational design

Launch the venture

Managing the venture

?Setting goal & strategies ?Working on technology operational methods ?Working on marketing plans ?Designing information systems ?Designing financial accounting system like: cash flow mgt.

Managing processes

?Establishing action plan ?SWOT analysis ?Evaluating performance ?Stimulated change which are needed

Managing growth

?Developing growth strategies ?Dealing with crises ?Exploring ways to finance growth

Managing people

?Selecting, appraising, training, motivating ?Managing conflicts

?Delegation of authority

Figure 4.2 : Functions of Entrepreneurs

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Kilby identify thirteen functions of an entrepreneur, which included some of the managerial functions also. Kilby has classified these functions into four groups. These are as follows:

A. Exchange Relationship: 1. Perceiving market opportunities. 2. Gaining command over scarce resources. 3. Purchasing inputs. 4. Marketing of the products and responding to competition.

B. PoliticalAdministration: 1. Dealing with the public bureaucracy (concession, licenses & taxes) 2. Managing human relation within the firm. 3. Managing customer and supplier relations.

C. Management Control: 1. Managing finance 2. Managing production

D. Technology: 1. Acquiring and overseeing assembly of the factory. 2. Industrial engineering 3. Upgrading process and product quality. 4. Introducing new production techniques and products.

Kilby suggested these functions may vary according to the size, type and setting of an enterprise and could be augmented through training and education. By summing up we can say that Entrepreneurs perform the following functions:

1. Innovation: Avery important function performed by entrepreneur is that of innovation. Theyanalyze the existing state of company's affairs and try to reach a new level of equilibrium by trying new and productive combinations of existing resources. They think of creative ideas and use their managerial and innovative skills to put those ideas into reality. They combine the productive factors, bring them together andhelp in the economic development of a nation.

According to Schumpeter, innovation can occur in the following forms:

Introduction of new goods ; The use of new method of production ; The opening of a new market ; The conquest of a new source of supply of raw materials ; and The reorganization of any industry.

According to Robert Wilken entrepreneurs contribute change that can be categorized into five types:

1. Initial Expansion: the original production of goods.

2. Subsequent Expansion: the subsequent change in the amount of goods produced.

3. Factor Innovation: the increase in supply or productivity of the factors of production. (a) Financial: the procurement of capital from new sources or in new form. (b) Labour: the procurement of labour from a new source or of a new type; the upgrading of existing labour. (c) Material: the procurement of old material from a new source or the use of a new material.

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